Finance

Oil Markets Oversupplied, Leading To Slow Growth

| by Sarah Zimmerman
An oil rigAn oil rig

Experts worry that worldwide oil markets will remain stagnant due to an elevated level of oil but waning demand from buyers to purchase shares. This trend is keeping oil prices unnaturally low and threatens the economy of major countries like Europe and China. 

Markets are currently out of balance, according to Reuters, with oil prices down 70 percent from 2014. There is simply too much oil and not enough demand to sell it all. The oversupply of oil has forced traders to charter supertankers to store unsold fuel. Many traders are storing oil to sell at a later date, hoping that in the future, oil prices will balance out again and they can sell their supply at a higher price. This is a key sign of oversupply: it is actually more in a trader's economic interest to store oil for the future instead of selling it now. 

"There are still excess stocks on the market – hundreds of millions of barrels of surplus oil. It will take a long time to reduce this inventory overhang," said Saudi Energy Minister Khalid al-Falih to a German newspaper.

CNBC reports that it is unclear when this imbalance will correct itself. The International Energy Agency (IEA) warns that oil stocks are at such elevated levels that it could keep oil prices unnaturally low.

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"In mid-summer 2016, although market balance is upon us, the existence of very high oil stocks is a threat to the recent stability of oil prices," the IEA said in a statement. "Although stocks are close to topping out, they are at such elevated levels, especially for products for which demand growth is slackening, that they remain a major dampener on oil prices."

External circumstances could continue to delay oil rebalancing, according to Reuters. China has been producing so much fuel that its domestic markets can no longer keep up. Although China is trying to export its fuel supply, there is simply little demand for more oil in the global market. Additionally, Reuters predicts that the United Kingdom's decision to leave the European Union could keep growth market stagnant for another six months. 

"It doesn't look as though we'll put much of a dent in global [oil] inventories until the second half of 2017," said Tim Evans, energy futures specialist at Citigroup, to Reuters. 

Sources: Reuters, CNBC / Photo credit: SOLIVEN MELINDO/Flickr

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